Thesis (M.S.)--Boston University

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M.Comm. / The aim of this study was to take a closer look at the modem financial institutions of the world and to determine what adverse conditions these companies face. Banks are some of the strongest organisations in a country, and the banking sector is a major employer. Yet, the risks faced by banks are enormous, and without the prudent and responsible management of these risks banks can find themselves in severe trouble. Recent situations in the South African banking sector underpin this, as several of the small banks in the country went into judicial management or were put out of business because they failed to meet their liquidity requirements. Risk management in banking is one of the most important tasks in the institution. Regardless of the division or type of operation, banks face certain risks. In this study, the researcher looked at the risks described in the literature as the main risks found in the banking environment. Solvency, liquidity, credit, price and operating risks are the risks most commonly discussed in the literature on banking risks. Although the five main risks constitute a serious threat to a bank each in its own right, each risk can be subdivided based on the likelihood of the risk materialising. The researcher therefore subdivided each major risk into subrisks. The question was then posed: Are there any similarities between these risks? The researcher developed a model whereby risks are categorised according to the attributes they have in common. The study classified the risks into the categories of market, credit and other risks. The objective in classifYing known banking risks is to assist the risk management team in a bank to manage similar risks in a similar way. Instead of focussing on each major risk and its multitude of subcategories individually, it is easier to manag~ a set of risks according to their similarities. Furthermore, the researcher wanted to determine which all the banking risks discussed would be universal in the danger they hold to any banking operation or any division operating within a bank. The question was posed: What are the classical risks in banking that would without a doubt lead to bank failure ifleft unmanaged? Liquidity, solvency and credit risks were the risks identified as critical in any banking operation and the risks that history has shown to be most detrimental to the future viability of any bank. Finally, the study looked at the management of these three classical risks from the perspective of determining policy and strategy. The study drew form literature, personal observation and the input of risk and bank management professionals to highlight some ofthe most important elements in credit, solvency and liquidity management.

M.Tech. (Operations Management) / In the banking sector, the delivery of impeccable service is one of the main and focal drivers to maintain and increase the customer-based. Therefore, the banks cannot afford to overlook examining their internal structures and processes. Incremental upgrade of a management information system or alignment of processes may prove in the long-term to have a minimal impact upon customer value. Organisations may need to employ business process reengineering (BPR) for the radical redesign of processes to improve performance dramatically in terms of cost, quality, service, flexibility and speed. Process reengineering is about reinvention, rather than incremental improvement. The purpose of this research is the study the role of BPR within the banking environment. To determine the gaps that restricts performance and the address these through process reengineering. The key elements would be to adopt a continuous improvement process, a team-learning culture and the need for strong leadership influence to support the changes. This would place the area of focus on a competitive platform within the industry. Based on the key success factors of process management in terms of process challenges, regulatory compliance was dominate (29.4%), while customer experience was the lowest (3.8%). Participants lacked knowledge of the technical and behavioural aspects of business process reengineering. The leadership style that management has adopted, contradict the staff’s view. Likewise, with communication management has rated their communication with staff much higher compared to how staff receives the message from management. The positive finding is the good level of team effectiveness within the bank. 88.5% of participants agreed to a need to change and/or improve. This reflects that a greater part of the workforce wants to achieve more. Services of a reputable consultant may be employed to educate and guide the bank through the change effort to foster solution-based thinking and client-centric approach. The implementation of a change management process and a communication process is recommended. Through a continuous improvement approach, cross-functional and high performing teams are created that leverage off talents and skills from experience staff. The efforts of BPR would place the bank on a more competitive platform with a sustainable competitive edge.

The banking industry in South Africa is facing three main challenges, namely: continuous change, foreign competition, and increasing levels of risk. These problems flow mainly from cultural diversity, globalisation, and rapid technological development in systems and communication. Decreasing predictability stems to a great extent from a lack of foreknowledge of how globalisation will develop, and how it can influence the South African banking industry in general and holistic risk management (HRM) in particular. Management of the South African banking industry therefore need to rely on crucial intelligence and foreknowledge concerning events, trends and development of (HRM) that affect the profitability and future strategic viability of the whole South African banking industry. At the onset various concepts and processes were emphasised in this study, namely operational risk management, strategic risk management, the risk management culture in the banking industry, the role of risk management in the banking industry, the role of risk management process in the banking industry, corporate governance in the banking industry in South Africa. However, the main purpose of this study was to explore the need and the dynamics of managing risk in the banking industry in a holistic manner. To this end the development of, and trends in (HRM) as part of good corporate governance in the banking industry were researched and documented. The practical aspect of the study was firstly based on the definition and analysis of different categories of risk in the banking industry. The definition and analysis was done in order to cover a broader range of risks the banking industry is facing. Secondly the risk management culture in the banking industry was investigated. Thirdly the role of risk management in the banking industry was explored in detail. Fourthly the risk management process in the banking industry was investigated and explained. Fifthly the link between risk management and corporate governance was explored. Sixthly models developed by Kloman (2000), Lam (2003) and Regester and Larkin (2005) were used as a benchmark to develop a framework for the management of holistic risk in the banking industry. It was concluded that in view of the need in the South African banking industry for a structured means of managing risk holistically, and in view of HRM constituting such a process, there is relevance for the implementation of HRM in the four big banks of the South African banking industry. However, small and unlisted banks do not manage HRM as suggested by the HRM framework. In this regard a number of recommendations were made with respect to managing HRM proactively. A framework based on empirical research and earlier work by Kloman (2000), Lam (2003) and Regester and Larkin (2005) was furthermore suggested for the implementation of HRM in the South African banking industry in the belief that this framework, and the overall research reported in this study could be of theoretical as well as practical value for risk managers in the South African banking industry. / Dr. D. J. Theron (UJ) Dr. T. P. v/d Walt (ABSA)

The inherent uncertainty of a bank's cash flows, cost of funds and return on investment, along with the increased variability of economic conditions during the past decade, have emphasized the need for greater efficiency in the management of a bank's assets and liabilities. A consequence has been an increased number of studies on how to structure a bank's assets and liabilities so that an "optimal" trade-off exists between risk, return and liquidity. Except for the Bradley and Crane (BC) model, the solution techniques proposed in the literature are computationally tractable only if uncertainty is ignored. Unfortunately, the BC model is not operationally appealing due to severe computational limitations, and a number of undesirable formulation features (such as the restricted feasible region for first period decisions). Given these deficiencies in the literature, the purposes of this dissertation are to develop an asset and liability management model (ALM) that is computationally tractable for large realistic problems and to demonstrate that this model is superior to existing models. The ALM model developed in this dissertation is a stochastic linear program with simple recourse (SLPR). This model incorporates the following essential features of asset and liability management: 1) the stochastic nature of the problem (by utilizing a set of random cash flows (deposits) with a given discrete probability distribution), 2) simultaneous consideration of assets and liabilities, 3) transactions costs, and 4) multi-periodicity. The ALM model was applied to Vancouver City Savings Credit Union's asset and liability management for a five year planning period in order to demonstrate the effort necessary to implement the model. Computational tractability for this large problem was maintained by using Wets' algorithm for solving SLPR. A simulation was run on a real (uncertain) environment to compare the decision making effectiveness of the solutions generated by the SLPR and stochastic dynamic programming (SDP) models. The findings of this dissertation are: 1) the ALM model is superior to an equivalent deterministic model, 2) the solution of the ALM model is sensitive to the asymmetry of the probability distributions of the cash flows, 3) the effort required for the implementation of the ALM model is comparable to that of an equivalent deterministic model, 4) the SLPR formulation is computationally superior to the SDP formulation utilized by Bradley and Crane, and 5) the simulation indicates that the SLPR formulation results in a better initial period decision than the SDP formulation (this is due to the restrictions imposed by the SDP formulation of maintaining feasibility for all possible forecasted economic scenarios for the first period decision). / Business, Sauder School of / Unknown

Central and Eastern Europe(CEE) is the region where the ownership of banks has been through the most fundamental and massive changes during the past two decades. This paper analyses the role of state-ownership in commercial banks, whether and why state ownership imposes negative effects on commercial banks in CEE transition countries, through both theoretical arguments and empirical testings. The thesis summarizes previous literature and analyses the role of banking ownership and performance, particularly though a dynamic view of the banking privatisation process. It investigates the reasons why state-owned banks are harmful in CEE countries from a corporate governance point of view. Followed by empirical tests on this topic, including banking production efficiency measurement using Stochastic Frontier Analysis and second-stage regression analysis about the effects of ownership on banking efficiency and asset quality. This paper finds out that the state ownership of banks imposes negative effects on bank performance and hinders successful privatisation of enterprises. Banking production efficiency has been improving greatly in late 1990s and stayed at a constant high level in 2000s. Through panel data regressions, we find the negative effects of state-ownership on banking production efficiency and asset...

I analyzed a sample of 228 U.S. bank acquisitions announced from January 1996 to December 2015. This dissertation explores whether acquiring banks pay more for targets with a higher capital ratio using a better measure of goodwill than previous studies. Specifically, this study uses manually collected goodwill to evaluate the value of bank capital, a measure that I argue is superior to those used in prior studies. I collect information about goodwill for 203 merger and acquisition (M&A) deals. I find a positive relation between the target's capital ratio and the goodwill paid for targets, which is consistent with previous cross sectional analysis on the relation between bank equity capital and value. This positive relation exists in the deals with a bank target, but not when the target is a savings institution. Furthermore, I find that the positive association between the target's capital ratio and goodwill paid by the acquirer only exists in the sample of acquisitions of banks announced before the 2007 financial crisis. This dissertation also evaluates the value of bank capital by analyzing the changes in shareholders' wealth around the announcement of M&As. My empirical analysis shows that banking mergers create value for the shareholder of targets. However, I find a significantly negative association between target's capital ratio and cumulative abnormal return to acquirers in M&As. Furthermore, I also report that this negative association only holds in M&As announced during and after the financial crisis. This dissertation also investigates the impact of bank capital on the cost of equity, another channel through which capital can influence banks' value. This dissertation tests the potential impact of bank capital on the cost of equity in the context of bank M&As. M&As are a good laboratory to study the relation between bank capital structure and the cost of equity capital because M&A transactions alter capital structure, and thus could change the cost of equity capital of the acquiring bank. My empirical results show a positive association between the target's capital ratio and the change in acquirer's annual cost of equity capital after the completion of the deals. Additionally, I also analyze a sample of non-US bank M&As and find a negative association between the target's capital ratio and the cumulative abnormal return of banks acquired in M&As.

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